October Plans of the Month
The introduction of our Plans of the Month series was to let savers and investors know where others are putting their money and to give us a chance to spot competitive plans which may have fallen under the radar. Our new and existing customers gain regular access to some of the best plans available in the market and so knowing what has proved popular with them during the previous month across both savings and investments can be useful.
Savers and investors
The plans featured are spread across five different categories, two capital protected savings plans and three investment plans:
- Fixed rate bond Plan of the Month
- Savings alternative Plan of the Month
- Income investment Plan of the Month
- Growth investment Plan of the Month
- Kick Out investment Plan of the Month
By covering traditional fixed rates bonds, FSCS protected savings alternatives, and income and growth investments, the categories aim to cover a range of options for both savers and investors, whether seeking either income or growth.
Current ISA rules mean that any income or growth received within an ISA is not then subject to tax, whilst recent changes mean you are now able to hold all of this in either Cash or Stocks & Shares and you also have the freedom to switch from one to the other and vice versa. With the current allowance at £15,000, ISAs can now play an even more prominent role for both savers and investors which is why wherever possible, each plan listed will be available both in and outside of an ISA as well as accepting ISA transfers. Please make sure you check the individual plan details first though to check.
October’s Plans of the Month
For each plan we also give you an in-house view, brought to you by our Head of Savings and Investments, Oliver Roylance-Smith, who gives his own thoughts as to what might be making the plan so popular, whether this is the return on offer or a particular feature.
Since the best plans are only open for a relatively short period or can have their interest rate changed quickly, sometimes without notice, each plan must either be available now, or we are shortly expecting to launch a new version. So make sure you check for any application deadlines…
Fixed Rate Bond Plan of the Month – 5 Year Step Up Bond paying up to 3.50% AER
For those wanting the highest fixed rates from their savings and are prepared to tie up their money in order to do so, the Investec Five Year Step Up Bond pays 3.00% AER interest for the first three years, followed by 3.50% AER for the final two years. No withdrawals are permitted during the term of the plan and interest will be paid annually into your nominated account. You can apply easily and quickly online and access to account information is via online and telephone banking.
Fair Investment view: “The fixed rates on offer from the Step Up Bond equate to 3.20% average AER which is market leading for a five year fixed rate bond. With the higher rate paid in the last two years, this may also appeal to those who might be waiting for a rate rise as well as those who are worried about potential increases to inflation. The account needs to be open and funded by 26th November so you’ll have to hurry if you’re interested.”
Savings Alternative Plan of the Month – Potential 4.75% p.a. growth
Aimed at savers who are prepared to sacrifice a fixed rate in exchange for the potential for higher returns, the Kick Out Deposit Plan from Investec offers a potential 4.75% per year (not compounded) and will mature early or ‘kick out’ provided the value of the FTSE 100 at the end of each year from year 3 onwards, is higher than its value at the start of the plan. If the Index is lower on all of these dates you will only receive a return of your initial deposit.
Fair Investment view: “As savers begin to realise that even if the Bank of England base rate does start to increase, the likelihood of the banks passing this on to savings rates is minimal, alternatives become increasingly more popular. With leading fixed rates currently offering 2.5% over three years and around 3.2% if you fix for five years, by linking your return to the FTSE this plan offers the opportunity to beat low savings rates whilst still retaining the capital protection and FSCS eligibility that many cash savers expect.”
Income Investment Plan of the Month – Up to 9.2% annual income
The FTSE 4 Quarterly Income Plan from Focus offers the opportunity for up to 9.2% annual income dependent on the performance of four FTSE 100 companies. An income payment of 2.3% will be made each quarter provided the value of all four shares is at or above 60% of their values at the start of the investment. If one or more shares are below this level, no income payment will be made for that quarter.
There is also some capital protection against the share prices falling since your original investment is repaid at the end of the term unless the value of the lowest performing share is less than 50% of its value at the start of the plan. If it is, your initial capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
Fair Investment view: “Those seeking income from their investments often put the potential yield and frequency of payments as their top priorities, and with most FTSE 100 companies currently paying dividends well under 5%, the opportunity for up to 9.2% annual income may well appeal, especially if received tax free within an ISA. However, the fact that your income as well as the return of your initial capital is based on the performance of four FTSE 100 shares rather than the Index as a whole does make this higher risk and should be a key consideration.”
Growth Investment Plan of the Month – 68% return even if the FTSE falls up to 10%…
Defensive plans offer investors the potential for stock market level returns even if the market goes down slightly, and the Defensive Enhanced Returns Plan from Investec is proving to be a popular option. The plan offers a fixed return of 68% provided the value of the FTSE at the end of the term is more than 90% of its value at the start of the plan (subject to averaging). Therefore, the FTSE can fall up to 10% and you would still receive a 68% return plus your original capital – that’s equivalent to just over 11% for each year invested (not compounded).
So, for example, if the FTSE falls 5% you would receive 68%, whilst if it rose 5% you would still receive a 68% payment, along with a return of your initial capital. However, if the Index falls by 10% or more below its starting value, no growth will be paid and your original investment will be returned in full unless the FTSE has fallen by more than 50%. If it has, your capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
Fair Investment view: “Whether you think the FTSE 100 Index may rise significantly in the medium term, continue to meander above 6,000 points in the coming years or indeed fall slightly below this level, the Defensive Enhanced Returns Plan from Investec offers the potential for high returns in all three scenarios. So for investors who are not convinced the total return from the FTSE will be more than 60% in the medium term, this plan strikes a compelling balance of risk v reward.”
Kick-Out Investment Plan of the Month – 7% returns even if the FTSE falls up to 20%…
Our final plan from Societe Generale is also aimed at those investors who would like to include a defensive element to their investment. The UK Step Down Kick-out Plan offers a return of 7% for each year invested (not compounded) provided the FTSE 100 Index is at the required level at the end of each year (from year 2 onwards). The required level is 100% of its starting value at the end of year 2, and then decreases by 5% each year thereafter down to 80% in the final year. This means 7% returns could be achieved even if the FTSE falls up to 20%.
If no growth is achieved, the plan also includes conditional capital protection which means your original investment is returned in full unless the FTSE has fallen by more than 40% at the end of the term. If it has, your initial capital would be reduced by 1% for each 1% fall, so you could lose some or all of your investment.
Fair Investment view: “This plan could appeal to investors who think the FTSE may fall slightly, stay the same, or rise in the coming years but not significantly. Defensive plans are proving popular in the current market and although there are higher headline returns on offer, these are not for plans where the FTSE can fall up to 20% and still provide investment level returns. The opportunity to beat the market should it stay relatively flat or fall slightly is understandably a compelling one.”
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek independent financial advice.
Always check whether any charges apply on transfer and remember that the preferential tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future.
The alternative savings option referred to in this article is structured deposit plan that is capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial capital and any stated returns. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.
The investments referred to are structured investment plans are not capital protected and there may be the risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated, in which case you may not be entitled to compensation from the Financial Services Compensation Scheme (FSCS). In addition, you may not get back the full amount invested if the plan is not held for the full term. The past performance of the FTSE 100 Index and any of its shares is not a guide to their future performance.